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THE INDUSTRY’S BUSINESS MODEL DEPENDS ON FREELANCE BUILDERS
GENUINE FREELANCE BUILDERS PLAY A PIVOTAL ENTERPRISE ENABLING ROLE
LEGITIMATE FREELANCE BUILDERS ARE NOT FALSELY SELF-EMPLOYED
A NETWORK WHERE LABOUR-ONLY SUBBIES ARE VALUED
WWW.FREELANCEBUILDERS.CO.UK
THE ECONOMIC ROLE OF
FREELANCE WORKERS IN THE CONSTRUCTION INDUSTRY
(Second Edition)
PROFESSOR ANDREW BURKECRANFIELD SCHOOL OF MANAGEMENT
FREELANCE BUILDERS IS THE FAST-GROWING NETWORK FOR LEGITIMATELY SELF-EMPLOYED LABOUR-ONLY SUBBIES. IT AIMS TO INCREASE AWARENESS OF THE IMPORTANCE OF SELF-EMPLOYED OPERATIVES TO THE CONSTRUCTION INDUSTRY AND TO THE UK ECONOMY.
WWW.FREELANCEBUILDERS.CO.UK
HUDSON CONTRACT SERVICES LTD IS THE UK’S LARGEST CONTRACT, AUDIT AND PAYROLL SERVICE TO THE CONSTRUCTION INDUSTRY. HUDSON CONTRACT HAVE SPONSORED THE FREELANCE BUILDER NETWORK AS
WE BELIEVE LABOUR-ONLY SUBBIES DESERVE GREATER RECOGNITION FOR THE VALUE THEY ADD.
WWW.HUDSONCONTRACT.CO.UK
1
CONTENTS
CONTENTSABOUT THE AUTHOR 3
EXECUTIVE SUMMARY 4
INTRODUCTION 8
THEORY & HYPOTHESES 10
EMPIRICAL ANALYSIS 20
DISCUSSION 36
QUANTIFYING FREELANCERS 40
CONCLUSION 48
END NOTES 50
REFERENCES 52
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3
ABOUT THE AUTHOR
ABOUT THE AUTHOR
He is widely published in top ranked international journals including the Harvard Business Review, Journal of Management Studies, Regional Studies, International Journal of Industrial Organization, the Oxford Bulletin of Economics and Statistics, and Small Business Economics. His work has been presented at the EU Commission, World Trade Organization, HM’s Treasury, UK Houses of Commons and Lords as well as through media such as BBC Breakfast Television and the Working Lunch.
Andrew is a founding editor of the International
Review of Entrepreneurship and has acted as a
guest editor of the International Journal of
Industrial Organization.
He has acted as a consultant for the European
Commission, Businesslink UK, GESAC (EU), Forbairt
(IDA), Hudson Contract, Schlumberger, Selex-Galileo,
May Gurney, Bank of Ireland International Banking,
the Irish Music Rights Organisation, and the UK
Professional Contractors Group (PCG).
PROFESSOR ANDREW BURKE IS THE FOUNDING DIRECTOR OF THE BETTANY CENTRE FOR ENTREPRENEUR AT CRANFIELD SCHOOL OF MANAGEMENT, UK. HE IS ALSO ON THE BOARD OF CRANFIELD VENTURES LTD – CRANFIELD UNIVERSITY’S TECH-TRANSFER DIVISION.
4
EXECUTIVE SUMMARYRemarkably, there has been little research investigating the economic importance of freelance workers in their own right. Instead, freelancers tend to make cameo appearances in research on industrial relations and entrepreneurship where they are usually cast in a negative light as exploited workers or underperforming entrepreneurs. In this research paper freelancers are the prime focus of attention. We examine their economic role in the context of the construction industry. Freelancers in the construction industry are normally referred to as ‘labour-only subbies’ or ‘pricework subbies’. We find that freelancers serve a unique and hitherto ignored positive function in the economy. They create economic value added by enabling greater enterprise. Indeed, since this value added creates a source of income which is unique to freelancers, we argue it is their defining feature. It distinguishes them from entrepreneurs and employees.
We find that freelancers create economic value in
the construction industry through 6 channels:
1. Freelancers enable greater de-risking of business
ventures which limits the downside risk and
enhances the expected return on investment.
Freelancers offer firms a ‘pay as you go’ model
which saves them the risk of sunk costs inherent in
employment contracts. This facilitates the staging of
finance and the associated de-risking techniques so
crucial to business venturing.
2. By enabling de-risking strategies, freelancers
enhance entrepreneurial capability by reducing
finance constraints and enabling greater flexibility
to alter strategy and tactics.
Freelancers reduce barriers to entry to the
construction industry by reducing the need to
raise large amounts of finance per building project.
By enabling the staged construction of building
units freelancers reduce the amount of finance
needed for the high-risk/early-stage of a project.
If the project proves viable then follow on stages
of finance are less risky and hence cheaper and
EXECUTIVE SUMMARY
5
EXECUTIVE SUMMARY
more readily available. If the project proves to be
unviable then the use of staged finance minimises
financial loss and increases the ability to embark on
alternative ventures.
3. Freelancers enable ventures to utilise
performance related pay schemes which can raise
productivity and pass off risk.
In the construction industry the use of piece
rate remuneration practices is almost exclusively
restricted to freelance workers. This implies that the
more productive and/or less risk averse workers self
select into freelance work.
4. The construction industry has a high degree
of specialisation of labour with a concomitant
significant amount of downtime (with an average
range of between 53 to 82 per cent in our case
studies) per trade per project. Freelancers reduce
these costs as they entail no downtime costs. But
freelancers also reduce the need for firms to have
a large portfolio of projects in order to reduce
extensive spare capacity costs. So by reducing
minimum efficient scale they promote lower
concentration in the construction industry.
We found that firms in the construction industry
were emphatic in their appreciation of this efficiency
enabling feature of freelancers. Every firm we
interviewed indicated a severe contraction of
operations (more usually closure) if they had to
absorb the downtime costs saved through the use
of freelancers. Without freelancers, the higher costs
would lead to higher prices which would in turn
cause a contraction in the industry.
5. Freelancers enable firms to reduce the cost and
risks associated with uncertainty over fluctuations
in consumer demand.
Here the spare capacity results, not from the
specialisation of labour techniques used in the
industry, but from an economic downturn. We
found that freelancers absorb much of this risk for
firms and hence reduce the scale of bankruptcy. By
contrast we found that in boom periods freelancers
have played a key role in ensuring that firms were
not constrained by lack of capacity. Both effects
imply lower costs and building prices for consumers
at every stage of the business cycle.
6. Freelancing reduces monopolistic power and
promotes competition.
We found that freelancers reduce sunk cost barriers
to entry, increase the ability to raise venture finance,
reduce risk in entrepreneurship and reduce industry
concentration. In sum, they increase the level of
competition in the industry which is a major benefit
to the British economy. One ‘sting in the tail’ for
freelancers is that this increased competitiveness
6
EXECUTIVE SUMMARY
reduces their ability to benefit from the value added
that they create. Strong competition means that
much of the value added is passed onto consumers.
The construction industry’s business model is
enabled and underpinned by the availability of
legitimate freelancers. Without genuine freelancers
the construction industry would be smaller in
size and hire fewer workers. It would be less
entrepreneurial and more inefficient. Consumers
(i.e. households, industry and Government) would
pay higher prices to a more highly concentrated and
less competitive industry. The empirical evidence
in this report supports this view. In the case studies
we observe industry executives explaining that
the industry business model relies on the ability
to use freelancers. We test this further by doing
two intensive ‘ground-up’ estimates of the use of
freelancers on a homebuilding and a state funded
school building project. The research only finds
a legitimate use of freelancers consistent with
definition outlined in Burke (2012) which captures
the unique value added provided by genuine
freelancers in the modern economy. Our results
indicate that an average of 51 per cent of
headcount and 57 per cent of work days on these
construction projects were accounted for by
freelancers. In other words, freelancers dominate
employees in the trades-manual workforce of the
construction industry.
Genuine freelancers play a pivotal enterprise
enabling role in promoting economic performance
in the construction industry. They are not
entrepreneurs but enable entrepreneurship. Their
unique contribution needs to be recognised and
valued. Their frequent misclassification as lesser
forms of employee or entrepreneurs runs the risk of
encouraging policies aimed at eliminating this vital
input to economic performance.
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8
INTRODUCTION
INTRODUCTIONThe purpose of this report is to investigate the unique contribution of freelance workers to economic performance with an application to the construction industry. Despite the fact that freelance workers account for the majority of self-employment in most developed countries, there has been very little research carried out on the impact of this unique type of labour on economic performance. In particular, understanding how business performance is affected as the supply of this type of labour varies.
Most research which has been carried out on
freelancers has been motivated by other areas of
the labour market and not by an intrinsic interest
in freelance workers themselves. Therefore,
research only considers aspects of freelance work
that overlaps with the core area of interest such
as entrepreneurship. As a result, these analyses
are only partial in focus and overlook freelancers’
most important economic functions. For example,
there is an Industrial Relations (IR) literature
which investigates the extent to which freelancers
are subjected to exploitation by employers. The
question here is how worker welfare is affected
by the exercise of an employer’s monopsony
power. In this research a freelance worker is often
the outcome of a push effect where a person
involuntarily becomes a freelance worker due to
weak bargaining power with employers. In such
scenarios freelance workers can get worse pay and
conditions than employees on permanent contracts.
There is also an entrepreneurship literature where
freelancers are not classified as workers but by
virtue of being self-employed are viewed as owner
managers who do not (yet) have any employees.
Since high performing entrepreneurs are usually
characterised by job creation – where high growth
job creators are often referred to as ‘gazelles’ –
the freelance ‘one man bands’ then comprise the
lowest end of the entrepreneurial performance
spectrum. They are then depicted as failing or
underperforming entrepreneurs.
In this paper we take a broader perspective to
assess the impact of freelance workers on economic
performance at the industry level – specifically
the construction industry. This requires an
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INTRODUCTION
assessment of some of the neglected economic
functions of freelancers in the research literature;
particularly their impact on economic efficiency.
The construction industry is a useful laboratory for
our empirical analysis as it has potential to utilise
a wide variety of the economics characteristics of
freelancers. We show that freelancers are enablers
of economic efficiency – enabling more efficient
allocation of risk, reducing excess production
capacity, reducing: fixed costs, financial constraints
and barriers to entry as well as enabling competition
and entrepreneurship.
We argue that while freelance workers share some
characteristics with each owner managers and
employees, their full economic role is not captured
when they are analysed as subsets of either category.
Put differently, freelancers are a unique economic
agent and carry out economic functions not
undertaken by either owner managers or employees.
The remainder of the report is structured as follows.
In the next section we examine theory relevant
to the economic function of freelance workers.
We derive hypotheses relating to their impact on
industry performance. These hypotheses are then
explored in the following section of the report
which is comprised of 6 case studies including a
corporate international home builder, an SME home
builder, a firm in the commercial building sector,
and 3 contractors from the excavation/foundations,
plastering and the building strip down sectors.
Some of these businesses also work in ‘repair and
maintenance’ sectors; particularly in the commercial
sector. According to the Construction Skills Network
(2010) these sectors account for well over half of
total construction industry output1*.
The next section of the report involves the
collection of new data in order to quantify the
number and hence importance of legitimate
freelancers (Burke, 2012) in the construction
industry. The data is compiled from interviewing
contractors at a homebuilding project and surveying
contractors in a state funded school building
project. The results indicate that just over half of
the workforce in the construction industry are
accounted for by freelancers. In the final sections of
the paper the implications of the case studies and
hypotheses are discussed.
* All End Notes can be found on page 50.
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THEORY & HYPOTHESES
The Oxford English dictionary defines the word freelance as a “person working for no fixed employer”2. Wikipedia defines a freelancer as “somebody who is self-employed and not committed to a particular employer long term”3. Essentially freelance workers hire out their labour services on a project by project basis. du Gay et al (1996) argue that the defining feature of freelance work is that it is a transactional short-term contract where the employer does not take responsibility for the personal development and employment career of the worker. Freelancers are usually paid on the basis of their productivity (output of their work) rather than the more commonly used approach in continuous employment where workers are paid on a per time input basis (e.g. weekly wage or month salary)4.
Freelancers account for a significant proportion
of economic activity. In order to estimate the size
of the freelance economy Kitching and Smallbone
(2008) propose a broad definition of freelancers as
“All self-employed workers and directors of limited
companies without employees”. Using data from
the National Child Development Survey 1991, Burke
(2000) estimates that 60% of the self-employed do
not hire employees. Using data from the European
Survey on working conditions 1996 Cowling (2003)
finds that 71% of the self-employed in the UK have
no employees. According to the latest estimates
from the Department for Business Innovation and
Skills (2010) 74% of all business enterprises, 8%
of turnover and 17% of total employment in the
UK private sector in 2008 were accounted for by
businesses without employees5. In the construction
industry in 2008 these figures are 85%, 21% and
40% respectively6. Therefore, the relative scale of
the freelance economy warrants investigation of
the economic function of freelancers in their own
right. This is different to other studies to date which
have only focused on attributes relevant for an
understanding of entrepreneur owner managers or
the exploitation of workers.
Burke et al (2008) shows that a typical self-employed
career is comprised of discontinuous discrete spells
rather than being permanent or continuous.
This pattern illustrates the contingent nature of
self-employment. At the level of the owner
manager this contingency is mainly driven by
THEORY & HYPOTHESES
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THEORY & HYPOTHESES
business uncertainty whereas at the level of the
freelancer it is to a greater extent driven by business
practices aimed at maximising efficiency i.e. to
minimise risk and avoid excessive spare capacity
through the use of fixed term contracts. The term
‘contingent worker’ is also a widely used term in
labour market analyses to describe freelancers.
Polivka (1996) emphasises that the defining
characteristic of ‘contingent work’ is that it is based
on discontinuous contracts. The contingency is
driven by a project’s end point of the work rather
than an economic downturn – a contingency upon
which even some continuous employment often
depends. Polivka (1996) also describes contingent
workers in terms of being both ‘just in time’ and
‘disposable’ hence capturing both the positive and
negative connotations of this form of work. The
former resulting from employers desire to achieve
productive efficiency through the application of ‘just
in time’ technology whereas
the latter the result of employer bargaining power
over workers.
Most of the research on temporary, contingent or
freelance workers focuses on this latter employer
motivation. Freelancing is associated with less use
of union collective bargaining (Sisson, 1983, Milward
et al 2000) and a concern that there is a need for
greater collective bargaining at the industry level to
protect the interests of contingent workers (Wial,
1994 and Herzenberg et al 1998). This, therefore,
depicts freelancers as the disablers of worker
negotiating power over employers. Being a freelance
or contingent worker is then cast as a ‘negative’
or ‘bad’ economic state which may require public
policy measures in order to help workers migrate
out of this category (e.g. Krausz, 2000 and de Jong
et al 2009). Furthermore, analyses such as DiNatale
(2001), Morris and Vekker (2001) and Remery et
al (2002) conclude that the majority of temporary
workers would opt for continuous employment if
they had the choice.
By extension the same studies find that a minority
of the workforce voluntarily choose to become
contingent or freelance workers. Indeed, Krausz
(2000) and Morris and Vekker (2001) find evidence
for the US that a desire for job flexibility rather than
economic gain seems to be the main determinant of
those who voluntarily choose temporary work. The
flexibility enabling dimensions of freelancing such
as portfolio work and an ‘enterprising self’ are
deemed as positive attributes (du Gay, 1996 and
Storey et al 2005)7.
Other research also finds evidence that in some
sectors contingent/freelance workers command
a pay premium over workers on continuous
employment contracts. For example, research in the
US by Polivka et al (2000) find that there is a great
variety in pay across various types of nonstandard
employment arrangements8. They find that after
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THEORY & HYPOTHESES
controlling for profile effects ‘on-call workers’
earned similar amounts to standard employees
while both ‘independent contractors’ and ‘contract
company workers’ earned significantly more. de
Vries and Wolbers (2005) find similar diversity in
the income performance for nonstandard workers
in the Netherlands. Both studies conclude that it is
a misleading generalisation to depict nonstandard
employment contracts as ‘bad’ or undesirable.
Freelancers are inevitably implicated in the
conclusions of the extensive entrepreneurship
research on self-employment. In this literature the
number of employees (or job creation) is often
used as a measure of entrepreneurial performance
(e.g. Lucas 1978, Cowling et al 2004 and Burke,
Fraser and Greene 2010). If viewed in this light then
freelancers ‘without-employees’ feature at the
lowest end of the self-employed entrepreneurial
performance scale.
Carmona et al (2010) find that in the EU variation in
the level of owner managers and ‘own account’
self-employed workers typically behave differently
across the business cycle. If one views freelancers
in their own right rather than as ‘wannabe’
entrepreneurs or employees, then more unique
attributes become apparent. Some of these are
apparent in the seminal model of self-employment
by Kihlstrom and Laffont (1979) upon which
most of the labour economics entrepreneurship
research is based. The strength of the model is
that it is based around a simple but compelling
axiom that people will choose to become self-
employed if that career option is preferable to
alternatives. Preference for any career option is
positively related to its pecuniary and non pecuniary
benefits. One of the key purposes of Kihlstrom and
Laffont’s (1979) model is to show how much risk-
taking is undertaken by the self-employed sector.
The model and the resulting entrepreneurship
literature focuses on risk associated with uncertainty
surrounding innovation and new business
ventures. However, if one hones in on the freelance
component of the self-employed i.e. those without
employees and who merely want to be manage their
own labour rather than manage a business empire,
then the risk in question becomes more specific.
In fact, if one strips out new venture business risk
from Kihlstrom and Laffont’s model then the risk
remaining is mainly comprised of job insecurity.
In a labour market where workers have a choice
between continuous employment and insecure
contingent/freelance work the financial rewards
for freelancers must adequately compensate for
the greater risk (income and job insecurity) in self-
employment compared to employment. Formally,
we can represent the labour market equilibrium as:
U(Y*, N) = u(W*, n) (1)
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THEORY & HYPOTHESES
Where U is the utility/satisfaction derived from
self-employment and this is positively related
to expected self-employment income Y and non
pecuniary benefits N such as job flexibility and being
your own boss. Utility, expected income and non
pecuniary benefits in employment are denoted by
u, W and n respectively. The framework is consistent
with the main tenets of the industrial relations
literature. So, for example, if an employer abuses
monopsony power and reduces the expected wage
either by reducing actual wages and/or reducing the
number of continuous employment contracts (hence
the probability of securing a wage) then W declines.
It follows that more people will then flow into
freelance self-employment driving the equilibrium
expected income (Y*) to a lower level.
In the entrepreneurship literature self-employment
income is derived from business profits and
hence influenced by factors affecting revenue and
cost functions9. With this focus, most of the risk
examined is directly related to the entrepreneurial/
impure risk associated with the uncertainty
regarding the existence of a profit opportunity and
the ability to exploit it (Knight, 1921). It follows
intuitively that the greater the entrepreneurial
risks the greater the rewards need to be in order
for people to choose to start-up a new venture. In
the entrepreneurship literature and indeed central
to Knight’s (1921) defining work, is the idea that
what defines the importance of entrepreneurs
to an economy is the inability to pass off this
type of risk. Entrepreneurs fulfil a key function
in the economy by taking on impure risk and in
the process unleashing the exploitation of new
profit opportunities. The fact that freelancers
take on this type of risk is one of the reasons why
they are so often categorised as entrepreneurs
themselves. What the entrepreneurship literature
misses, therefore, is that freelancers are not really
entrepreneurs but enablers of entrepreneurship - by
offering labour on contingent terms which allows
entrepreneurs to pass off impure risk. By reducing
the risk involved in business venturing freelancers
therefore generate more entrepreneurial activity
than would occur in their absence.
One of the defining features of successful
entrepreneurs is their ability to de-risk the venture
through staging finance and spreading risk across
a portfolio of projects/ventures (Burke, 2009).
Bhide (2000) has shown that entrepreneurs will
often test out the viability of a venture through a
pilot launch rather than attempt a fully resourced
start-up. Entrepreneurs also manage risk through
use of real options (Dixit, 1989 and O’Brien et al,
2003). Freelancing creates more opportunities for
entrepreneurs and corporate ventures to adopt
these strategies. Therefore, instead of having to
commit to long term employment contracts in order
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THEORY & HYPOTHESES
to secure labour for a new venture, businesses
can employ freelancers on short term temporary
contracts. To a greater degree, this enables ventures
to stage labour costs and only incur them once
particular performance/risk milestones have been
achieved. Therefore, if the performance of the
venture is less than was hoped for, the venture has
the option not to incur the labour costs associated
with subsequent stages of development. The
(downside) risks are therefore reduced in the
venture and the expected return on entrepreneurial
investment increased. The risk is passed from the
entrepreneurial venture to the freelancer who now
bears the risk of a period of unpaid labour if the
venture fails to proceed after the completion of any
stage of development10.
Also since freelancers are typically paid for the
output of their work rather than the input (as is the
norm for employees) they take on general business
risk. For example, the prevalence of piece work as
the contractual norm for most freelancers in the
construction industry means that freelancers take on
the risk of delays due to bad weather or co-ordination
risks associated with temporary non availability of
complementary inputs to production. This gives our
first hypothesis illustrating to how freelancing can
enable greater levels of entrepreneurship.
Hypothesis 1: Freelancing enables greater
de-risking of business ventures which limits the
downside risk and enhances the expected return
on investment.
Burke (2009), points out that when this form of
de-risking strategy is employed it also increases
entrepreneurial capability on two levels. Firstly,
the lower risk and greater expected return on
investment make it easier to raise finance and hence
reduces the prospect of a venture facing finance
constraints. Secondly, by only committing resources
on a stage by stage basis the venture has much
greater flexibility/agility to alter strategy and tactics
if business circumstances turn out to be different
than expected once a performance milestone has
been reached. Therefore, since freelancers enable
business ventures to make greater use of de-risking
strategies the following hypothesis follows:
Hypothesis 2: By enabling de-risking strategies,
freelancers enhance entrepreneurial capability and
agility by reducing finance constraints and enabling
greater flexibility to alter strategy and tactics.
Freelancers can also reduce some of the principal
agent problems that arise between employer and
employee. Storey et al (2005) note that in the British
media industry the interests of freelancers are
closely aligned to the businesses who hire them:
15
THEORY & HYPOTHESES
“Success depends on pleasing clients whatever it
took”11. Freelancers’ self-employed status means
that they are not subject to most labour law and
have lower unionisation. As a result, they offer a
secondary highly flexible labour market to firms.
This can enable more productive work practices
that would not be possible to implement in the less
flexible primary labour market. Lazear (2000) notes
that piece rates can have dramatic effects
on labour productivity. In such cases, this is driven
not only as a result of greater effort by workers
but by a selection effect where more able workers
choose to take up individual piece work contracts
in order to avoid negative spillover effects from lazy
or less able workers. Prendergast (2002) notes that
performance related pay schemes are often used in
situations of greater uncertainty where employers
pass greater responsibility and risk onto the worker.
If self-employed freelance workers are less risk
averse than employees then firms will experience
less principal agent problems with freelancers who
will be more willing to accept performance related
pay schemes. This gives rise to hypothesis 3.
Hypothesis 3: Freelancers can enable ventures
to reduce firm-worker principal-agent problems
through more optimal use of performance related
pay schemes which can raise productivity and pass
off risk.
The construction industry manifests a high degree
of specialisation of labour in production. The
productivity enhancing impact of the specialisation
of labour has long been recognised in economics
as far back as Adam Smith (1776) who used it as
the primary building block in his analysis of the
Wealth of Nations: “The greatest improvement in
the productive powers of labour, and the greater
part of the skill, dexterity, and judgement with
which it is any where directed, or applied, seem to
have been the effects of the division of labour”12.
A prerequisite to enable these productivity gains
is the ability to avoid specialist worker downtime.
This implies having enough customer demand to
warrant large enough production levels in order
to avoid specialist worker spare capacity. As with
Ford’s model T car, this is often achieved by passing
on a significant share of the productivity gains to
consumers in the form of lower prices which in
turn generates demand sufficient to support high
levels of production. By raising the importance of
economies of scale, the productivity gain from the
specialisation of labour raises minimum efficient
16
THEORY & HYPOTHESES
scale in the industry. However, the availability
of freelance workers reduces the need to have
high volume production in order to realise these
productivity gains. The contingent basis of freelance
contracts can mean that they are not retained
during spare capacity downtime. This therefore
reduces minimum efficient scale and decreases
industry concentration.
Hypothesis 4: By reducing the need to for high levels
of production in order to avoid the risk of worker
downtime when adopting the specialisation of
labour, freelancing reduces minimum efficient scale.
Closely aligned to the previous point are the risks
of incurring the cost of worker downtime due to an
unexpected fall in consumer demand. The short-
term contingent basis of freelance contracts means
that they can be rapidly hired and fired in order
to supply unexpected upturns and downturns in
consumer demand. Therefore, in a downturn, risk
of spare labour capacity is passed on from the firm
to freelancers. Correspondingly, in an unexpected
upsurge in consumer demand freelancers enable
firms to rapidly hire labour and hence tap into profit
opportunities that require speed to market. In this
case freelancers save firms the cost and hence risk
of carrying spare labour capacity in order to enable
the exploitation of unexpected consumer demand.
Hypothesis 5: Freelancers enable firms to reduce
the cost and risks associated with uncertainty over
fluctuations in consumer demand.
Freelancers also enable a much more competitive
market. Hypotheses 1, 2, 4 and 5 have the effect of
reducing scale advantages which reduces industry
concentration and monopolistic power. Hypotheses
1, 2, 3 and 4 reduce sunk cost barriers to entry
while hypothesis 2 reduces financial constraints
on market entry and business growth. All of the
hypotheses above also increase profitability and
hence the incentive to engage in business venturing.
Therefore, combined the total impact of freelancing
is a greater number of firms competing in the market.
Hypothesis 6: Freelancing reduces monopolistic
power and promotes competition.
As noted above in hypotheses 1-5, freelancers
enable entrepreneurial and business practices
which boost firms’ profits. Therefore, as long as
freelancers have some bargaining power with
firms one would expect them to be able negotiate
some share of this value added in the form of
higher pay. For example, Heery et al (2004, p24)
note that in the entertainment industries some
groups of freelancers earn higher rates of pay than
employees. They attribute this to compensation for
17
THEORY & HYPOTHESES
downtime and lack of benefits. Since this source
of income is unique to freelancers, we argue it is
their defining feature. It distinguishes them from
entrepreneurs and employees. But whether or
not freelancers gain a share of the unique value
added which they create may have less to do with
the importance of their bargaining power with
employer firms which has been emphasised in the
literature. As hypothesis 6 implies their biggest
threat may instead be consumers. By increasing
competitiveness freelancers can cause the value
added to be passed on to consumers in the form
of lower prices rather than boosting profits. To the
extent that this happens freelancers’ opportunity
to negotiate with firms for a share of the value
added created is reduced. Alternatively, if increased
competition is manifested by greater levels of
product differentiation then average firm profits can
rise (Burke, van Stel and Thurik, 2010). In this case
the potential for freelancers to negotiate some of
the gains from their activity is enhanced.
In summary, in this section we noted that
freelancers are more usually analysed in the context
of employer-employee bargaining power and
entrepreneurship. Both of these literatures tend
to depict freelance work in a negative light. The
industrial relations literature categorises freelance
workers as part of an unregulated secondary labour
market where the majority of workers are worse
off than they would be in continuous employment.
The entrepreneurship literature captures freelance
workers by dent of including the self-employed
without employees as part of analysis of the
self-employed. By consequence freelancers
are depicted as low performing self-employed
entrepreneurs. The approach we have taken in
this paper is depicted in table 1 and shows that
the labour force can be divided into a 2x2 matrix
based on the dual distinction of whether a person
is employed or self-employed, and a manager or
a worker. Freelancers comprise the lower right
hand box illustrating their self-employed but
non managerial status. The table is instructive
as it both illustrates why freelancers share
some characteristics with other self-employed
entrepreneurs and workers on employment
contracts, but highlights that they form a unique
category in the labour force.
18
THEORY & HYPOTHESES
Table 1: Labour Force Functional Categories
In summary, we have analysed freelancers in their
own right and derived 6 hypotheses which illustrate
that freelancers perform a unique economic
performance enhancing function not discussed in
the literature hitherto. This shows freelancers in a
much more positive economic light where they are
the enablers of entrepreneurship, productivity gains
and competition. In the next section we move on
to examine these hypotheses more closely in the
context of the UK construction industry.
Manager Worker
Employed Executive Employee
Self-Employed Entrepreneur Freelancer
19
20
EMPIRICAL ANALYSIS
EMPIRICAL ANALYSIS
Data and methodology
Over the period June to September 2010, we carried out semi structured interviews with typical firms drawn from the different sectors of the construction industry in the UK. We focused on building firms rather than private DIY and casual repair and maintenance. We attempted to cover most building sectors and a portion of contractors within these sectors.
To provide an examination of the house building
sector we interviewed senior managers13 of Taylor
Wimpey PLC who are one of the largest corporate
home builders in the UK (and who have sizeable
international operations). We also visited one of
their construction sites on two occasions in order to
observe freelancers working at different stages of
the production process at first hand. We interviewed
the Commercial Director of MV Kelly Ltd who are a
nationwide excavation and civil engineering company
serving all sectors of the construction industry –
including the Taylor Wimpey site which we visited.
Likewise we interviewed the CEO and Finance
Director of SDP Plastering Ltd who are contracted
in similar home building as well as commercial
construction sectors in the Midlands. We also
interviewed both the CEO and Projects’ Director
of an SME house builder (Brian Fell Ltd) who also
engages in some repair and maintenance in both
house and non house sectors. In addition, we
interviewed both the founder and current CEO of
an SME (Goldhill Contracting Ltd) who specialise
in strip-out and waste removal for pre renovation
building work. They operate in the repair and
maintenance and commercial sectors of the
industry. Finally, we interviewed the CEO of Torclad
Ltd who are a nationwide commercial and industrial
roofing and cladding company.
The 6 case studies are mainly concentrated in
the construction of buildings but also have some
coverage of commercial ‘repair and maintenance’.
Combined they account for over half of the
construction industry’s output (Construction
FREELANCE WORKERS IN THE UK CONSTRUCTION INDUSTRY
21
EMPIRICAL ANALYSIS
Skills Network, 2010). We have not carried out
an interview in the infrastructure sector which
accounts for 8% of industry output and makes use of
the freelancers. The purpose of the case studies is to
test the existence and importance of the hypotheses
at an empirical level. Given the time at our disposal,
we have attempted to cover a wide spectrum of the
construction industry and have chosen firms who
are either market leaders in their sector or what we
believe are typical SMEs. Therefore, the aim is to
have a fairly representative, albeit not statistically
significant, sample of case studies. Since the number
of case studies is small further empirical research is
to be encouraged. For the present purposes of kick-
starting this research trajectory, we are encouraged
by the similarity of views presented to us regarding
the economic/business role of freelancers in the
construction industry.
Taylor Wimpey: Corporate International Home Builders14
Taylor Wimpey PLC are one of the largest nationwide home builders in the UK. They also have building projects in North America (USA and Canada) and Europe (Spain & Gibraltar) which account for roughly 33% and 3% of turnover respectively. In 2009 the company had a turnover of £2.6bn while in the buoyant period of 2007 company turnover was nearly twice this amount and
amounted to £4.7bn which indicates the scale of the cyclicality of the industry.15
In order to achieve high levels of worker productivity
Taylor Wimpey use a high degree of specialisation of
labour mainly supplied by contractors who can offer
contingent contracts to Taylor Wimpey because
they pass much of the risk in this contingency
onto their workforce by hiring freelancers (sub
contractors or ‘subbies’) on a contingent basis. Table
2 provides a list of the specialised inputs used in a
224 (predominantly apartment) unit project in Diglis
Basin in Worcestershire. We have estimated the
percentage of downtime work days per specialised
input for this typical corporate apartment build
project. The average downtime is 82%. Weighted by
cost the average downtime is 74% which indicates
that the potential cost savings generated by
freelance workers are very high. In the absence of
freelancers, Taylor Wimpey and their contractors
would be obliged to hire employees and pay them
during downtime. The worst case scenario for these
firms is where they cannot find any alternative work
for employees during this downtime. The data in
table 2 illustrates that these costs could potentially
entail an average scale up in labour costs by a
multiple of nearly 4 (3.85). Therefore, it would take
at least 4 concurrent Taylor Wimpey apartment
projects of the same scale and within a sufficiently
small geographic radius to enable labour mobility in
order to avoid these downtime costs.16
22
Input % downtimeFoundation work, substructure, drainage 55.8
Piling 90.4
Brickwork 74.2
Floor Planks 92.3
Scaffold 92.3
Steelwork 88.5
Roofing 86.5
Window Installation 88.8
Kitchens 90.8
Lift Installation 96.2
Plastering 69.2
Electrical/Carpentry 55.4
Painting 82.7
Finals/Clean 91.2
Average 82.4
Max 96.2
Min 55.4
Average weighted by cost 74.3
Table 2: Diglis Bason Apartment & House Project
Table 3 provides similar data for a Taylor Wimpey
house building project in Evesham, Worcestershire.
There is more scope to have overlapping and more
continuous sequential phases of construction in
house building than in the case of apartments. As a
result, the estimated downtime of 53% is lower but
again substantial. This implies at least 2 perfectly
sequenced concurrent house building projects in
order to avoid much of the downtime costs.
Table 3: Badsey Road House Building Project
Inputs Weeks % Downtime05/11/10 to 13/1/12
Active weeks 58
Inputs
Foundations 34 58.6
1st Brickwork 25 43.1
Joist and Flooring 24 41.4
Plate 25 43.1
Roof 32 55.2
1st Fix 33 56.9
1st & 2nd stage plaster 35 60.3
2nd Fix Carpenter 33 56.9
2nd fix plumb/electric 29 50.0
Paint 33 56.9
Finals 33 56.9
Average 52.7
Max 58.6
Min 41.4
EMPIRICAL ANALYSIS
23
EMPIRICAL ANALYSIS
A Commercial Director of Taylor Wimpey, indicated
that if faced with the challenge of managing
a project without recourse to contractors and
freelancers, he believes, that the industry would
be pushed towards greater scale of operations in a
bid to have more overlapping projects – sequenced
as much as possible to minimise downtime for the
various forms of specialised labour. However, he
was sceptical at how successfully scaling up would
solve downtime cost problems as this approach
would necessitate regular movement of workers
from one region in the UK to another. He felt the
industry might be faced with the prospects of
taking the downtime costs on the chin. “Demand
conditions would not be sufficient to sustain that
type of scale up. Even if we had that many projects,
regional deployment of labour would entail huge
coordination costs for the company and would be
very unpopular with workers. In reality, if we had
to have all workers on the books then costs would
soar and the industry would be badly affected.”
On a separate visit a Senior Commercial Manager
indicated that an attempt to eliminate downtime
costs though scaling up operations would create
high additional logistic management complexities
and costs. So, in economics terms, the direct and
indirect (through contractors) use of freelancers
helps to reduce downtime costs and minimum
efficient scale in the home building industry.
In their Annual Report 2009 under ‘Principal Risks
and Uncertainties’, Taylor Wimpey emphasise the
importance of freelancers to their risk management
and company strategy:
In order to optimise our build cost efficiency, whilst
retaining the flexibility to commence work on new
sites as market conditions allow, the vast majority
of work carried out on site is performed by sub-
contractors. (Taylor Wimpey, 2009: p. 12)
A Commercial Manager also explained that the
firm de-risks projects by selling ‘off plan’ first. He
pointed out that company policy typically required
that around 15 per cent of a phase of a project
must be sold off plan before Taylor Wimpey will give
the go ahead for construction work to start. This
financial de-risking strategy relies on the availability
of freelance workers which avoid sunk labour costs
being incurred in the period prior to testing for
sufficient market demand (i.e. selling 15 per cent off
plan). Simultaneously, they enable the flexibility to
commence work when market conditions demand -
freelancers enable construction supply to be slowed
down or speeded up as market demand ebbs
or flows17.
The Commercial Manager outlined how freelancers
help Taylor Wimpey to reduce uncertainty and pass
on risk to contractors. Specific pieces of construction
24
projects (e.g. groundwork, brickwork or plastering)
can be contracted out to firms who agree to do that
work at a fixed fee and often at short notice. These
contractors are able to offer this service through the
use of freelancers (sub-contractors or ‘subbies’ as
they are known in the industry) who in turn work on
a similar basis – usually, on piece rates. Thus, the risk
is passed from Taylor Wimpey to contractors who
in turn pass it on to freelancers. In subsequent case
studies we further examine how these contractors
try to avoid downtime costs by utilising freelancers.
Taylor Wimpey increasingly place a strong emphasis
on corporate social responsibility as part of their
strategy and business practices. As a result,
contractors/freelancers are only hired when they
can meet the environmental strategic objectives for
the company.
“We vet all suppliers prior to working with them
to ensure that they meet our requirements for
environmental impact, health and safety, quality
and financial stability.” (Taylor Wimpey, 2009: p.12)
SDP Plastering Ltd: A freelance contractor18
This company is based in Staffordshire and operates as a contractor to major building projects in the homebuilding, commercial, industrial and public sectors.
They also operate in the building repair and maintenance sectors. The company’s services include drylining, wet plastering, rendering, floor screed, and metal partitions including wall and ceiling systems.
The founder, Steve Paul, was initially a freelance
plasterer who saw an opportunity to start a
plastering contracting business based entirely on
hiring freelancers. He had previously worked as
an employee of a council and observed the high
contribution to overheads of having plasterers on
employment contracts during periods of downtime.
By only hiring freelancers, Steve planned to cut
overhead costs as well as avoid the need for major
start-up capital. The main remaining barrier to entry
was reputation so Steve’s background as an efficient
freelance plasterer was important.
Steve and his business partner Steph are acutely
aware that the construction business fluctuates with
the business cycle. In 2007 SDP Plastering Ltd hired
150 freelancers and this number dived to just 25 in
2009 but had partially recovered to 80 at the time of
interview in June of 2010. Over the same period SDP
Plastering Ltd dropped its rate of pay for freelancers
by 50%. Steve Paul emphasises the importance of
passing business cycle risks onto freelancers in order
to survive. “We couldn’t operate if everyone was a
PAYE employee as our business is feast or famine.
EMPIRICAL ANALYSIS
25
EMPIRICAL ANALYSIS
We wouldn’t be viable. We would have to raise
prices and would price ourselves out of the market”.
SDP Plastering Ltd’s ability to compete on price
in the market is facilitated by the cost savings of
avoiding paid downtime in periods of “famine”.
But their preference for freelancers is not only
driven by efficiency gains. It is also driven by the
supply of labour. At one buoyant point in the
business Steve and Steph tried to hire plasterers on
full time contracts but had to revert back to a 100%
freelance model within 4 months as over half of
their plasterers left the business. Steve and Steph
realised that the best plasterers could earn more
as freelancers and hence opted for that type of
work despite the greater job insecurity. Freelance
plasterers are paid on a piece work basis i.e. per
square metre. This suits highly productive plasterers
who can earn much more than being on industry
hourly rates. Steve maintains that “90% of plasterers
prefer being paid on a piece work than a fixed
hourly wage”.
He also notes that piece work enables SDP
Plastering Ltd to pass business risks onto freelancers.
For example, if materials don’t arrive on time due
to a lorry breaking down then piece work based
pay ensures that this risk of downtime is borne by
freelancers. A last minute cancellation of business
can also be managed by cancellation of freelancers’
contracts. Combined these aspects ensure that
much of the entrepreneurial business risks in the
venture can be passed on to freelancers. But Steve
Paul also notes that it can swing the other way
too in that if a freelancer gets a better offer from
another contractor they often walk off a job without
notice. The ease in hiring and firing freelancers
eliminates the need for lengthy and costly screening
and selection of plasterers and means that SDP
Plastering Ltd has great entrepreneurial agility to
respond rapidly to market opportunities.
In sum, SDP Plastering Ltd highlights how industry
efficiency and competitiveness has been enhanced
by freelancer workers. This illustrates how in
the plastering sector, freelancers have enabled
business de-risking, low barriers to entry, highly
agile firms, greater worker productivity, and lower
spare capacity. The 100% freelancer model used by
SDP Plastering Ltd implies that all of the downtime
costs are avoided and the risk borne by freelancers.
Steve Paul argues that he “simply can’t imagine
the construction industry functioning without
freelance workers. The industry would not survive if
subbies (freelancers) had to be on full employment
contracts.”
26
MV Kelly Limited: Civil Engineering & Building Contractors19
This company was the contractor which carried out the foundation as well as the drainage and ducting work in the Taylor Wimpey Diglis Basin project. The firm is one of the major groundwork contractors in the UK.
It carries out excavation, foundation work, drainage
and ducting, hard surfacing, and landscaping in
the home building, infrastructure, commercial and
industrial sectors. It was founded in 1993 by Michael
Vincent Kelly who at the time owned a JCB and hired
out his excavation services on a freelance basis. He
was later joined by his son John Kelly who had a
business degree and grew the firm into a nationwide
business. By 2010 the company hired 32 office
staff and between 400-450 construction workers
at any one time. The Commercial Director, Sandy
Forbes estimates that approximately 15% of the
construction workers are employees and 85%
are freelancers.
One of the critical features of the service offering
of MV Kelly is that it must be able to supply on
an ‘as needed basis’ and at very short notice. The
Commercial Director explains a typical basis for
this is that, “Builders will only release a block for
construction once they have sold around 25% of the
units off plan. This causes our project start dates
to be very unpredictable. When they are approved
it is at very short notice, usually 2 to 3 weeks but
sometimes as little as 2 days. Frequently, we get
last minute postponements or even cancellations.
It would not be possible to meet these demands
without the use of sub contractors.”
Therefore, MV Kelly needs to be a highly flexible
company which can avoid worker downtime costs
if it is to compete in the market. Sandy Forbes
points out that the impact of the economic
downturn has had a triple effect which makes these
entrepreneurial capabilities even more important.
Firstly, the downturn has caused an increase in spare
capacity and MV Kelly have been able to minimise
these downtime costs through the use of freelance
sub contractors. Secondly, lack of demand has
caused building projects to be broken down into a
greater number of smaller phases. So, for example,
a 100 unit building project which in buoyant times
would be built in a single continuous phase would
be broken down into 5-7 discrete phases with
downtime separating each phase. Likewise, the
same problem arises with an infrastructure project
where funding becomes scarce and hence spending
is drawn over a longer period causing more discrete
phases. Thirdly, the greater level of uncertainty
associated with the current economic downturn
EMPIRICAL ANALYSIS
27
EMPIRICAL ANALYSIS
has had the effect of increasing the number of last
minute approvals for building phases. Therefore,
all three features of the economic downturn have
increased the importance of being able to use
freelancers in order to avoid spare capacity costs
and increase the agility of their service offering.
Sandy Forbes explains the consequences of not
being able to utilise freelance workers, “The cost of
downtime or idle periods would be too great. We
would simply go out of business if we could not use
sub contractors”.
For example, as we estimated earlier in table 2,
the foundation work on the Taylor Wimpey Diglis
Basin project entails a 56% labour downtime over
the life of the project. Since on average 15% of
MV Kelly’s workers are employees then 15% of the
downtime costs (i.e. 8.4%) would be absorbed by
MV Kelly either in a direct cost or avoided by using
these workers on other MV Kelly projects. But 85%
of the downtime costs (i.e. 47.6% of total potential
labour costs) are passed onto freelance workers. In
this manner, large downtime costs faced by a major
builder such as Taylor Wimpey are passed off to
contractors such as MV Kelly who in turn are able
to pass them off to freelancers. The elimination of
these relatively large downtime costs means lower
cost buildings for consumers and greater levels of
enterprise and investment in the industry.
Sandy Forbes points out that most freelancers
do not want permanent employment contracts
because they prefer taking the risks to get the
higher rewards of ‘following the work’. He explains
the economics of the situation is that a permanent
employment contract offers lower reward because
employers need to factor in that the worker will be
idle (due to inevitable downtime) for a period of
the employment. He argues the pay is also lower
because they are paid a fixed wage associated with
average productivity. He points out that highly
productive workers are better off being a freelance
worker paid on piece work based on their personal
productivity. Thus, the freelance segment of this
labour market attracts less risk averse and more
highly productive workers.
Goldhill Contracting Ltd: building strip out and preparation20
Goldhill Contracting Ltd is a building strip out, cleaning and waste removal business in the commercial, industrial and home building sectors. They hire an average of 30 people comprised of roughly one third employees and two thirds freelancers.
The company is a father and son family owned
business. It was started by the father Mr William
Sie Barnett who as a freelance building strip out
worker recognised an opportunity to offer a more
professional service in this business sector. The
company grew further when the son (Ian Barnett)
28
joined the firm; applying his business acumen to
enhance the scale and efficiency of the company’s
operations. The use of freelance workers enabled
the company to start-up and grow without the need
to raise external finance.
One of the main challenges of the business is to
dovetail its activities with other construction work
involved in any given project. Most of their work
is required in phases with substantial intervals
between one aspect of the work and then next.
As a result, the use of freelance workers avoids
substantial downtime costs i.e. two thirds of these
potential costs are avoided through freelance
workers. They note that most freelancers used by
the firm do not want to become employees. They
prefer the higher rewards resulting from their
willingness to take some of the business risks off
Goldhill Ltd. But they also note that they prefer to
use employees for some of the work. They use in-
house employees to manage the environmental and
health & safety performance targets of the company.
Likewise, Ian Barnett is aware that the use of
freelance workers enables competition in the
industry. He observes that “Without freelancers, the
industry would end up being dominated by a small
number of big companies”.
Brian Fell Builders Ltd: An SME local builder21
Brian Fell founded the company in 1966 and since then has been the Managing Director. Previously, he worked on a country estate as a joiner and then was offered a project to renovate a building by a local farmer which led to the foundation of his business. His company operates in many sectors of the construction industry including hospitals, houses as well as maintenance and repair work.
The business is located in the village of Leven
in Yorkshire and serves a catchment area which
includes the city of Hull. Today the business
includes a joinery manufacturing workshop which
has its own customer base as well as supplying
Brian Fell’s building projects in the private and
commercial construction sectors. Project values for
the construction work undertaken by the business
range between £1k to £1.2m. There are 4 office
staff, 3 project managers, 18 direct employees (of
which 13 work in the joinery) and between 5 and 15
freelancers engaged dependent on workload. The
business had a turnover of £2.3million in 2009 and
is a member of the Federation of Master Builders
(FMB). On a typical house building project and with
EMPIRICAL ANALYSIS
29
EMPIRICAL ANALYSIS
current volumes of work, roughly 25% of the labour
is carried out by freelancers. By contrast, an
unexpected project such as a recent roof repair
of a village hall was carried out almost entirely
by freelancers.
At the time of interview, Brian Fell had 13 building
projects and 15 joinery projects in-progress. Brian
Fell and Anthony Thompson (Projects Director)
outlined the factors that influence their hiring of
freelancers. Their main concern with employees
is carrying a labour overhead when business is
not sufficient to keep everyone busy. Brian Fell
explained that “If we had to put people on the
books we would have to cut back on the number of
employees in order to avoid having spare capacity”.
Anthony Thompson described it as a “pay as you
go” model where freelancers could be used to
enable the ability to maintain supply during spikes
in demand and avoid carrying downtime cost during
troughs in demand. If downtime is excessive then it
will trigger redundancies which in turn add further
costs at a time when cash flow is likely to be tight.
Brian Fell explained “If you run out of work then you
would go bankrupt paying redundancy payments”.
He ruled out using less specialised labour in order to
avoid downtime. He stressed that specialised skills
were critical for productivity and quality. He also
pointed out that the labour market is comprised of
specialists and that ‘jack of all trades’ were a rarity
(for example, see figure 1).
Anthony Thompson explained that freelancers
are able to command a pay premium “Freelancers
don’t get holiday, sick or downtime pay but this
means they can command higher pay per week
than employees doing the same work”. He also
pointed out that there is a selection effect in the
labour market where the mindset of the freelancer
in relation to risk/reward was very different to an
employee. “We could not ask an employee to work
on the same basis as a sub contractor. It would
unsettle him and he would leave”.
Another key consideration in hiring freelancers
is that it allows flexibility and agility. Brain Fell
maintained that “Sub contractors create flexibility.
Moving men around and putting part of the job on
hold while a problem gets sorted out is only possible
with sub contractors. Without them the company
would be left carrying a huge labour overhead in
such circumstances”.
There are certain parts of the job where the
company would not use sub contractors. For
example, given work volumes there is a certain
amount of labour they feel they can hire as
employees without the risk of incurring downtime
30
costs. This employee base also enables the company
to differentiate itself around customer care. This
is particularly important for private house build
and repair and maintenance. In these market
segments customers are on site and hence expect
some continuity of builder personnel throughout
the entire project. They will also engage with the
company most at the start and end of the project
and for this reason Brian Fell usually ensures that
these parts of the construction project are carried
out by employees rather than sub contractors. He
pointed out that larger house builders such as Taylor
Wimpey do not have the same problem because
most large new build projects do not have the
customer on site during the building work.
EMPIRICAL ANALYSIS
31
EMPIRICAL ANALYSIS
Site and dwelling set-out Week 1 & 2by an engineer or manager Site clearance of debris or scrub Week 1 & 2by a specialist contractor Foundation excavate & cast Week 1 & 2by a pair or gang of groundworkers Drains dug and installed Week 3by a pair or gang of groundworkers
Scaffolding rig to roof level Weeks 4-13by a gang of accredited scaffolders Timber frame erected Weeks 4-7by a gang of specialist joiners Roof covering of felt, lath, tile, Weeks 7-9by a gang of roofers or slaters
Outer walls in brick, stone render Weeks 9-13by a gang of bricklayers or masons
Plumbing first fix pipework Week 11-12by a registered plumber & mate Electrical first fix cabling Week 11-12by a registered electricial & mate Insulate and Dry-lining Week 13-17by a pair or gang of plasterers First fix Joinery Week 15-16by a pair of joiners
Service connections Week 13-17by an engineer or manager
Specialist installations i.e. Week 17-18computer and security technicians Plumbing & Heating 2nd fix Week 20-22by a registered plumber & mate Electrical installation 2nd fix Week 20-22by a registered electricial & mate Second fix and Finishing Joinery Week 17-22by a pair of joiners & Kitchen fixers External drive paths patio Week 17-22by a specialist gang of groundworkers
Figure 1: Specialisation of labour in the construction of a single bespoke dwelling.18 specific phases of works carried out by 14 different trade-groups. Brian Fell Builders program of works for a 5-bed Potton timber frame dwelling.
1
8
13
4
2
9
8
5
3
10
9
6
3
11
11
7
12
14
32
Torclad Ltd: Commercial and Industrial Cladding and roofing company22
The company was founded in 1977 as a flat roof provider and gradually evolved to its present position where it is a leading UK manufacturer and fitter of building envelopes which comprises GRP (Glass Reinforced Polyester) bespoke fabrications, rainscreen and traditional wall cladding and all forms of industrial roofing for the commercial industrial and public sectors.
Its customers comprise major nationwide retailers
such as Tesco and Homebase, and all the major
construction companies such as Interserve, BAM UK
and Wates which incorporate new schools, colleges,
public buildings and private developments.
The company has 25 full time employees hired
in its GRP manufacturing unit. The company only
hires freelance sub contractors on the fitting side
of its business. Torclad typically use 4 employees
and 8 freelancers on a GRP fitting requiring 12
workers. When asked about the reason for this
split Managing Director (CEO) Adam Johnson was
emphatic that if the company had not historically
hired fitters on employment contracts that he
would instead opt for 100% use of freelance fitters
on every job. He said that the productivity of
freelancers was significantly higher than employees
– typically, 25% higher. He said “Clients will ask us
if the workers are on a price (i.e. are freelancers)
because they know that if they are then the job will
get done well and on time”.
Adam Johnson attributes the difference in
productivity to a number of factors. The first is
due to a selection effect. The type of person that
gravitates towards freelance work is entirely
different to somebody who seeks employment.
He says that freelancers distinguish themselves
from employees with characteristics such as being
more motivated, responsible and responsive to
performance related pay. He says that freelancers
“have a thirst for work”, are “their own man” and
are “all round better performers”. He points out
that they have applied performance related pay to
employees but do not get the same reaction as they
do from freelancers with the same pay scheme. He
points out that the priorities between the two types
of workers are completely different as “employees
prioritise job security while freelancers want to earn
as much as possible. Employees are not prepared to
take the risk of becoming self-employed”.
EMPIRICAL ANALYSIS
33
EMPIRICAL ANALYSIS
He says that the relationship between Torclad and
its workforce is dramatically different depending on
whether the worker is an employee or freelancer.
“Our employees treat us like an employer while
freelancers treat us as a customer – and in business,
customer is king”.
Apart from benefits of direct labour productivity,
Adam Johnson states that the ability to hire
freelancers at short notice and on a short term basis
enables a great degree of flexibility and agility for
Torclad Ltd. “Freelancers allow us to scale up or
down our operations with ease. They also allow us
to speed up a project if required”.
He also points out that the ability of freelancers to
avoid downtime costs associated with spare capacity
as “fundamental”.
Table 4 provides an estimate of downtime costs for
a typical Torclad commercial building roof project
– in this case, for a Homebase store (see figure 2).
The data illustrates an average of 54% downtime for
the project. In column 2 it is evident that the ‘stop-
start’ nature of the specialised input requirements
indicate that scaling up the number of concurrent
projects is likely to have limitations in terms of its
ability to reduce downtime costs as well as posing
major logistical challenges. Therefore, freelancers
reduce costs and minimum efficient scale in this
sector of the construction industry.
At an industry level Adam Johnson argued that
freelancers are critical to maximise the efficiency
and performance of the construction industry:
“The industry simply could not survive without
freelance contractors”.
34
EMPIRICAL ANALYSIS
Examples and Illustrations of Torclad’s Commercial Building Projects
Figure 2: Torclad Ltd Project Plan for Homebase
Table 4: Downtime at Torclad Ltd
Wall Cladding Insulation Roof Cladding
ID Task Name Duration Start
1 Homebase roofing works 68 days Sat 17/07/10
2 site set up 9 days Sat 17/07/10
3 Scaffolding sunrise day nursery 1 day Sat 17/07/10
4 Scaffolding generally 8 days Mon 19/07/10
5 Compound set up 1 day Mon 19/07/10
6 Safety netting internal night work phase 1 5 days Mon 19/07/10
7 Roofing works 59 days Wed 28/07/10
8 Phase 1 strip and re-sheet 10 days Wed 28/07/10
9 Remove phase 1 netting install phase 2 5 days Mon 09/08/10
10 Phase 2 strip and re-sheet 20 days Mon 16/08/10
11 Remove phase 2 netting install phase 3 8 days Wed 08/09/10
12 Phase 3 strip and re- sheet 20 days Mon 13/09/10
13 Strip scaffold 8 days Wed 06/10/10
14 Strip netting 8 days Wed 06/10/10
F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S12 Jul '10 19 Jul '10 26 Jul '10 02 Aug '10 09 Aug '10 16 Aug '10 23 Aug '10 30 Aug '10 06 Sep '10 13 Sep '10 20 Sep '10 27 Sep '10 04 Oct '10 11 Oct '10 18 Oct '10 25 Oct '10
Task
Split
Progress
Milestone
Summary
Project Summary
External Tasks
External Milestone
Deadline
Page 1
Project: Home Base ProgrammeDate: Tue 19/10/10
PDF created with pdfFactory Pro trial version www.pdffactory.com
ID Task Name Duration Start
1 Homebase roofing works 68 days Sat 17/07/10
2 site set up 9 days Sat 17/07/10
3 Scaffolding sunrise day nursery 1 day Sat 17/07/10
4 Scaffolding generally 8 days Mon 19/07/10
5 Compound set up 1 day Mon 19/07/10
6 Safety netting internal night work phase 1 5 days Mon 19/07/10
7 Roofing works 59 days Wed 28/07/10
8 Phase 1 strip and re-sheet 10 days Wed 28/07/10
9 Remove phase 1 netting install phase 2 5 days Mon 09/08/10
10 Phase 2 strip and re-sheet 20 days Mon 16/08/10
11 Remove phase 2 netting install phase 3 8 days Wed 08/09/10
12 Phase 3 strip and re- sheet 20 days Mon 13/09/10
13 Strip scaffold 8 days Wed 06/10/10
14 Strip netting 8 days Wed 06/10/10
F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S12 Jul '10 19 Jul '10 26 Jul '10 02 Aug '10 09 Aug '10 16 Aug '10 23 Aug '10 30 Aug '10 06 Sep '10 13 Sep '10 20 Sep '10 27 Sep '10 04 Oct '10 11 Oct '10 18 Oct '10 25 Oct '10
Task
Split
Progress
Milestone
Summary
Project Summary
External Tasks
External Milestone
Deadline
Page 1
Project: Home Base ProgrammeDate: Tue 19/10/10
PDF created with pdfFactory Pro trial version www.pdffactory.com
Roofing for a Homebase store Discontinuous Phases: (days per phase) Days Downtime
Working days: 17/7/10 to 15/10/10 68
Scaffolding 2: (9 and 8) 17 75%Safety Netting 4: (5, 5, 8 and 8) 26 62%Strip and re-sheet 4: (1, 10, 20 and 20) 51 25%
Average Downtime 54%
Please note: Only 6 weeks of a 10 week project has been shown.
35
36
The purpose of the cases is to test if the theory applies in reality. Specifically, to ascertain whether managers in the construction industry use freelancers in order to achieve the business effects outlined in the hypotheses. In each of the case studies we find that the hypotheses are at the forefront of the motivation for managers to hire legitimate freelancers.
Therefore, the evidence bears out the theory that
while freelancers share some characteristics with
employees and entrepreneurs they play a unique
and defining economic role in their own right.
The case study analyses revealed that freelancers’
economic performance enhancing effects were not
only in evidence but appeared as the main business
model upon which the industry’s labour hiring
practices are based. Virtually all of the managers
which we interviewed found it hard to conceive
of how the industry would operate without the
freelance labour market. They had little doubt that
an absence of freelance workers would have drastic
economic consequences for the industry.
In the next section we quantify the input of
legitimate freelancers to the Taylor Wimpey Diglis
Basin homebuilding project and also a state funded
school building project (West Lakes Academy) in
Egremont in order to ascertain the extent to which
the industry relies on freelancers.
The purpose of the paper has been to take a first
step to open a new research trajectory which
recognises freelance workers as a unique form of
labour which plays specific roles in driving economic
performance. We examine these in more detail now.
In hypothesis 1 we claimed that freelancers
enabled greater de-risking of business ventures. We
found that all of the business interviewed utilised
freelancers for this purpose – usually, creating
their de-risking strategies around the capability of
freelancers to minimise fixed sunk labour costs.
Taylor Wimpey adopted a staged approach to
investment, only investing when 15% of units had
been sold off plan. This practice implies that key
contractors such as MV Kelly and SDP Plastering Ltd
have to be able to scale up and down labour inputs
regularly and at short notice. They were only able
DISCUSSION
DISCUSSION
37
DISCUSSION
to do this by utilising very high levels of freelancers
in their workforce (85% in the case of MV Kelly and
100% in the case of SDP Plastering Ltd). In other
sectors the same staged investment held true.
Companies like Torclad Ltd’s fitting business (66%
evolving to 100% freelancers) and Goldhill Ltd (66%
freelancers) did not have to commit resources until
they actually had an invoice for a new project.
In the case of SME home builder Brian Fell (25%
freelancers on scheduled work and a higher
proportion on variable demand projects) freelancers
play a smaller but similar significant role. However,
here we found that the ability to use freelancers is
limited when customers regard the ‘personal face’
of the firm as a key differentiator and competitive
advantage. We also noted that employees were
preferred over freelancers in businesses engaged in
the manufacturing of construction materials (both
Torclad’s and Brian Fell’s manufacturing activities
made no use of freelancers).
In hypothesis 2 we argued that if freelancers enable
de-risking strategies then they will reduce finance
constraints in the industry. Likewise, this will enable
greater resources and agility in the use of these
resources. In all of the case studies the ability of
freelancers to increase flexibility and responsiveness
to the unforeseen was highlighted as a major reason
for their use. The ability of freelancers to de-risk the
business and allow firms to only invest after being
invoiced was key in enabling the start-up of at least
half of the companies interviewed. The founders
of SDP Plastering Ltd, MV Kelly Ltd and Goldhill
Ltd all previously worked as freelancers and were
able to evolve into entrepreneurs because of the
low finance requirements of start-up due to the
availability of freelancers. In essence, allowing a
start-up strategy where you sell first and then only
pay for labour after an order had been confirmed.
In hypothesis 3 we proposed that freelancers can
enable more optimal use of performance related
pay schemes which can raise productivity and pass
off risk. We found that these schemes could equally
be adopted for employees but were not utilised
because they do not have the same effect. All of
the companies claimed that the ‘mindset’ of a
freelancer is different to an employee and therefore,
a selection effect occurs when piece work is made
available. In essence, workers with higher risk/
reward preferences gravitate towards freelance
work. SDP Plastering Ltd and Torclad Ltd claimed
that in addition the more able/productive workers
would opt for freelance work because the greater
availability of piece work in this labour market
segment allowed them to maximise their income.
In hypothesis 4 we argued that since freelancers
reduce downtime costs they reduce the need for
firms to scale up in order to have enough work for
38
DISCUSSION
specialist employees. We found supportive evidence
for this with an average range of between 53 to
82 per cent downtime in our case studies. In all of
these cases, downtime costs were mainly avoided
through the use of freelance labour (either directly
or indirectly through the use of contractors) with
the risk of these costs being ultimately borne by
freelancers. This significant value added created
by freelancers was cited as one of the reasons
why freelancers are often paid a premium over
employees for the same work. Most of the
managers interviewed were very much aware that
minimum efficient scale in the industry would be
necessarily much higher if freelancers were not
available i.e. with fixed demand M&A activity would
increase as firms buy market share in a bid to have
more simultaneous and sequential projects in order
to avoid downtime (resulting from the specialisation
of labour in the construction industry).
The interrelatedness of the assumptions
underpinning the hypotheses tends to mean that
if one resonates with managers then so will the
others. Therefore, at this point in the discussion
it is probably not too surprising to note that
hypothesis 5 which posits that freelancers enable
firms to reduce the cost and risks associated with
uncertainty over fluctuations in consumer demand
was also supported by the case studies. The ability
of freelancers to facilitate rapid scaling up/down
while reducing the costs of spare capacity were
emphasised as very important by all of
the managers.
Hypothesis 6 claims that freelancing reduces
monopolistic power and promotes competition. This
hypothesis is an economic implication that follows
if the other hypotheses hold true as they reduce:
sunk cost entry barriers, finance constraints, labour
costs, risk in enterprise and minimum efficient scale.
All of these effects promote a more competitive
industry which is good for consumers (who may be
the main beneficiaries of the value added created by
freelancers), employment and the economy more
widely. This conclusion was further supported by all
of the managers who expressed the view that the
current industry structure and scale of output was
reliant on the availability of freelance workers.
We close the discussion of the case studies with
a few comments on limitations. Firstly, we chose
a case study approach in order to flesh out the
empirical basis for the hypotheses in detail. We
were able to see the hypotheses in action first
hand – and in the case of Taylor Wimpey on site.
But 6 cases studies is not an entire industry and
39
DISCUSSION
therefore, we now welcome more research and
also encourage wider examination of freelance
work. Likewise, we hope that suitable data can be
generated in order to facilitate statistical analysis.
We hope that the reader is convinced of the
importance of freelancers whose primary role is not
as a small-time entrepreneur or exploited worker
but as an enabler of enterprise, competition and
business performance. We believe that we have
made a significant first step towards unearthing that
freelancers are an important point of study in their
own right and to this end, hope that a freelancer
research trajectory will gain momentum.
40
QUANTIFYING FREELANCERS
Introduction
Earlier we noted that it is common for manual trade employees and freelancers within the construction industry to only be perceived as substitutes. In this light, their main interaction is competitive where freelancers are a shadow workforce for employees. The analysis in this report has shown that freelancers actually serve a distinct economic function of their own. They help generate 6 areas of value added in the economy which are unique to them i.e. that are not generated by employees. These include:
1. Enabling greater de-risking of business venturing (by both corporations and SMEs)
2. Creating more capable (less resource constrained), flexible and agile businesses
3. Increasing productivity though a reduction in idle workforce downtime
4. Offering more options to use performance related pay schemes
5. Enabling greater ability to manage the risk and uncertainty associated with variable demand i.e. peaks and troughs in demand
6. Increasing competition through lower barriers to entry and reduced minimum efficient scale
We noted in the case study analysis that executives
in the construction industry emphasised that
freelancers underpinned the business model for
the construction industry through these economic
value drivers; particularly drivers 1, 3 and 5 above.
This raises the question of the extent to which
the current industry business model depends on
freelance labour. To answer this we estimated the
share of freelancers in the construction industry
workforce.
IN THE CONSTRUCTION INDUSTRY
QUANTIFYING FREELANCERS
41
In order to provide a robust micro level test we
undertook ‘ground-up’ project level estimates of
the number of freelancers on two different building
projects. This enables an estimate where one can
closely observe the composition of the data at the
level of the construction project. The first estimate
is generated from the Taylor Wimpey Diglis Basin
project which featured earlier in this report. This
provides a direct insight into the homebuilding
sector. In addition, we also examine a state funded
school building project undertaken by Kier in
Egremont which gives us an insight into the public
non-housing sector of the industry. Table 5 illustrates
that this implies that we have ‘ground-up’ estimates
from sectors accounting for 26 per cent of the
industry. In the absence of any other ‘ground-
up’ project level estimates and given resource
constraints – particularly the high labour intensity
in collecting the data – we believe that these
estimates provide a useful insight and the best real
estimate to date. That said, they are still a pioneering
starting point and hopefully further ‘ground-up’ data
collection and analysis will be forthcoming.
Table 5: Industry output by sector
Source: Construction Skills Network (2012)
Defining freelancers:
Since our research has found that freelancers serve a unique economic function, it makes sense to provide a definition of these distinct economic agents in order to facilitate the data collection process. Based on this study and subsequent research we have derived the following definition of legitimate freelancing which was published in Burke (2012):
Freelancers are workers who hire their services on
a contingent project basis where remuneration is
usually output based. The cost and risk of their own
Construction Industry Sector 2010
Industry Share (%)
Public Housing 4
Private Housing 13
Infrastructure 12
Public Non-housing 13
Industrial 3
Commercial 22
Housing Repair & Maintenance 16
Non-Housing Repair & Maintenance 17
Total 100
QUANTIFYING FREELANCERS
42
labour downtime within the project and economic
inactivity between projects are borne entirely by the
freelancer23.
On this basis it is possible to provide some practical
points of distinction which help categorise workers
into legitimate freelance and employee categories.
These are presented in Table 6. Primarily, a true
freelancer should be hired on a contingent project
rather than a continuous basis where they take on
the cost and risk of downtime. These distinguishing
core features are critical in order to enable the
economic value drivers 1, 3, 5 and 6 above. In
addition, one might expect to observe freelancers
being paid on an output basis either in a lump sum
or an implicit ballpark amount comprising the sum
of day rates across a likely interval of time. We use
these reference points to both collect and interpret
the data.
Taylor Wimpey’s Diglis Basin: Block Phase 4A
BlockC3 (apartments)
We estimate the extent to which freelancers are
used on the same project (Phase 4A Block C3) that
was the focus of the earlier case study analysis. In
order to collect this information Taylor Wimpey
invited all of the contractors involved on this project
to meet the author for an interview on site at Diglis
Basin. Over the period June 2011 to January 2012
we managed to meet the majority of contractors on
these site visits and the remaining contractors were
contacted by telephone during and after this period.
Data was returned in person at the meeting or
sent later by email. Data collection was completed
in September 2012. This research resulted in an
estimate based on the full population of contractors
involved in the project. The data is presented in
table 7 and indicates that roughly 74 per cent of
the work days on the project were completed by
freelancers. In terms of a headcount, freelancers
accounted for 71 per cent of the number of people
who worked on this project.
QUANTIFYING FREELANCERS
43
Table 6: Distinctions between freelancers and employees
Source: Burke (2012)
Table 7: Freelancers on Taylor Wimpey’s Diglis Basin Phase 4A BlockC3
Freelancer Employee
Term of Contract: Project based Continuous
Project downtime and inter-project spare capacity costs & risks:
Borne by the worker Borne by the business
Remuneration: Usually output based Usually input based
TRADEFreelancer: Work Days
Employee: Work Days
Number of Freelancers
Number of Employees
Piling 12.00 0.00 2.00 0.00
Groundworks & Drainage 1,563.00 188.00 25.00 3.00
Structural Steel 5.00 33.50 1.00 5.00
Upper floors & Stairs 120.00 16.00 5.00 1.00
Scaffolding 86.00 34.40 3.00 3.00
Brickwork 1,260.00 36.00 21.00 2.00
Windows & Ext Doors 265.00 20.00 6.00 1.00
Architectural Metalwork 0.00 5.00 0.00 4.00
Roofing 185.00 32.00 15.00 3.00
Lift 72.00 6.00 2.00 1.00
Carpentry 381.00 21.00 12.00 2.00
Electrical Installation 0.00 381.00 0.00 6.00
Plumbing Installation 22.00 681.00 2.00 8.00
Partioning & Decorating 750.00 150.00 12.00 4.00
Kitchen 0.00 62.00 0.00 1.00
Total 4,721.00 1,665.90 106.00 44.00
Percentage 73.92 26.08 70.67 29.33
QUANTIFYING FREELANCERS
44
In line with our defi ni on of freelancers we
also asked the contractors whether or not the
freelancers were hired on a con ngent project basis
or not. The con ngent contract outcome tallies
with the case study evidence in that the con ngent
nature of the contract was a necessary feature of a
freelance contract in order to generate its unique
value added for these businesses. We also asked
them to let us know if the freelancers were only paid
on performance i.e. a specifi ed fee for comple on
of a specifi c piece of work. In the construc on
industry this is known as ‘working on a price’. The
results are presented in table 8. These show that
all of the contractors who responded indicate that
freelancers were hired on con ngent contracts. In
terms of performance based pay the 93 per cent of
the contractors said that they paid freelancers on ‘a
price’ (accoun ng for 65 per cent of all freelancers).
Table 8: Freelance contractual terms at Diglis Basin
TRADE
Freelancers working on
a price (%)
Freelancers on a
con ngent contract
(%)Piling 100.00 100.00
Groundworks & Drainage 0.00 100.00
Structural Steel 100.00 100.00
Upper fl oors & Stairs 100.00 100.00
Scaff olding 100.00 100.00
Brickwork 100.00 100.00
Windows & Ext Doors 100.00 100.00
Architectural Metalwork n/a n/a
Roofi ng 20.00 100.00
Li 100.00 100.00
Carpentry 100.00 100.00
Electrical Installa on n/a n/a
Plumbing Installa on 100.00 100.00
Par oning & Decora ng 100.00 100.00
Kitchen n/a n/a
Percentage of businesses 92.73 100.00
Percentage of freelancers 65.09 100.00
QUANTIFYING FREELANCERS
45
Kier’s West Lakes Academy project in Egremont
Kier kindly aff orded us the opportunity to survey
the main 37 contractors on a state funded school
building project following a site visit to the
construc on project. We used a ques onnaire
containing the same ques ons that had been
used in Taylor Wimpey’s Diglis Basin homebuilding
project. This was sent out to the contractors by
Kier via email. A reminder email was also sent out
by Kier. Subsequently, the author and an assistant
rang all of the non-respondents in order to generate
more replies. Finally the survey collec on process
fi nished with a fi nal reminder email being sent by
the author. This resulted in a response rate of 27%
comprising 10 businesses. The results are presented
in tables 9 and 10. In table 9 we observe that 40 per
cent of the work days are carried out by freelancers.
This was provided by 37 freelancers accoun ng for
31 per cent of the total number of people working
on the West Lakes Academy project for these fi rms.
The fi gures are lower than Diglis Basin and this
could be due sector diff erences and/or to the fact
that government prefers the use of employees over
freelancers in the building projects which are state
funded.
TRADEFreelancer: Work Days
Employee: Work Days
Number of Freelancers
Number of Employees
Demoli on 0.00 425.00 0.00 15.00
Ground Engineering 0.00 70.00 0.00 4.50
Roofi ng 1,107.00 351.00 19.00 13.00
Furniture Installa on 14.00 320.00 2.00 14.00
Fire stopping & air sealing 32.00 44.00 1.00 2.00
Render 330.00 495.00 2.00 3.00
Steelwork 15.00 124.00 3.00 10.00
Fire/Security Alarms 340.00 170.00 10.00 5.00
Piling 0.00 420.00 0.00 7.00
Insula on 0.00 300.00 0.00 8.00
Total 1,838.00 2,719.00 37.00 81.50
Percentage 40.33 59.67 31.22 68.78
Table 9: Freelancers on Kier’s Egremont West Lakes Academy project
QUANTIFYING FREELANCERS
46
Both the Taylor Wimpey and Kier projects’ es mates
place freelancers as a major supplier of labour with
74 and 40 per cent of the work days comprising
an average of 57 per cent. In terms of headcount
measures the average is 51 per cent freelancers
across both projects.
Table 10 needs to be interpreted with cau on as 4
businesses did not answer the ques ons rela ng to
con ngent contracts and working ‘on a price’. This
has the eff ect of reducing the sample size to 16% (6
fi rms). We think the reason for the lower response
rate in Egremont compared to Diglis Basin is due to
the fact that the former was an email ques onnaire
whereas the la er involved direct person to person
contact. Nevertheless, the data in Table 10 es mates
that 100 per cent of businesses hired freelancers
on a con ngent contract basis. It also shows a
lower use of working on a price with just half of
fi rms hiring freelancers on this contractual term
(accoun ng for 59 per cent of freelancers).
Table 10: Freelance contractual terms at Egremont
Conclusion and discussion:
To our knowledge, these are the fi rst micro level
‘ground-up’ project based es mates of the number
of legi mate freelancers in the construc on
industry. They illustrate that the dominant business
model of the construc on industry depends on
the availability of freelancers. The research only
fi nds a legi mate use of freelancers consistent with
defi ni on outlined in Burke (2012) which captures
the unique value added provided by freelancers in
TRADE
Freelancers working on
a price (%)
Freelancers on a
con ngent contract
(%)Demoli on - -
Ground Engineering - -
Roofi ng 100.00 100.00
Furniture Installa on 0.00 100.00
Fire stopping & air sealing 100.00 100.00
Render 100.00 100.00
Steelwork 0.00 100.00
Fire/Security Alarms 0.00 100.00
Piling - -
Insula on - -
Percentage of businesses 50.00 100.00
Percentage of freelancers 59.46 100.00
QUANTIFYING FREELANCERS
47
the modern economy. We find an average of 57% of
work days are provided by freelancers and a slightly
lower figure of 51% in terms of freelancer share of
headcount in the workforce. The 2 building projects
which we examine also show that there is likely to
be some variation in terms of the use of freelancers
across different sectors of the construction industry.
Of course, we still have no ‘ground-up’ estimates
for projects from sectors comprising the remaining
74 per cent of the construction industry so further
research is required in order to arrive at an industry
view. That said, all the evidence so far points
towards legitimate freelancing as a major engine of
growth and driver of the dominant business model
used in the construction industry.
QUANTIFYING FREELANCERS
48
CONCLUSION
CONCLUSIONFreelance workers are often categorised as a small and underperforming version of entrepreneurial owner managers. At the other end of the spectrum they are sometimes depicted as a form of exploited worker resulting from abuse of employer monopsony power.
In this paper we explored the overlooked but more
central economic functions of freelancers where
they are the enablers of entrepreneurship rather
than the entrepreneurial agents themselves. We
showed that freelancers play a key role in their own
right in enabling economic efficiency through more
efficient allocation of risk, enhanced productive
efficiency, reduced fixed costs and financial
requirements as well as facilitating market entry
and greater competition. We show that freelance
workers often share in the value added which they
create.
Industry executives in our case study analysis
highlighted that the industry business model relies
on the ability of firms to use freelancers. We tested
this further by doing two intensive ‘ground-up’
estimates of the use of legitimate freelancers -
complying with the definition of Burke (2012) - on
a homebuilding and a state funded school building
project. We find that an average of 57 per cent of
work days and 51 per cent of headcount on these
projects are accounted for by freelancers.
We argue that oversight of the importance of
legitimate freelancers in prior studies can lead to
inappropriate policy approaches to freelancers
where they are either ‘shoe horned’ into employee
status, classified as illegitimate economic agents,
or motivated to become business owners. We
show that the absence of a legitimate freelance
sector of the workforce would have highly negative
economic consequences; causing economic
contraction, higher costs, and reduced employment
as well as more highly concentrated and less
competitive markets. We believe that this paper is
a first but important step towards a new research
trajectory focusing on the role of freelancers in
business and economic performance.
49
50
END NOTES
1 The main remaining sectors are infrastructure,
public sector non housing and private ‘repair and
maintenance’ which account for 8%, 13% and
22% of industry output respectively
(Construction Skills Network, 2010).
2 Waite (1998, p253).
3 http://en.wikipedia.org/wiki/Freelancer
4 The IRS in the USA use the following example
to provide guidance on how to differentiate an
electrician who is an independent contractor
from one who is an employee. “Vera Elm, an
electrician, submitted a job estimate to a housing
complex for electrical work at $16 per hour
for 400 hours. She is to receive $1,280 every
2 weeks for the next 10 weeks. This is not
considered payment by the hour. Even if she
works more or less than 400 hours to complete
the work, Vera Elm will receive $6,400. She also
performs additional electrical installations under
contracts with other companies that she
obtained through advertisements. Vera is an
independent contractor.” http://www.irs.gov/
businesses/small/article/0,,id=179115,00.html
5 The ONS (2010) estimates that 13% of UK
employment (including public sector) in June
2009 was accounted for by self-employment.
These figures are much greater at 53% for
construction trades, 66% for building trades and
21% for construction operatives. Source: http://
www.statistics.gov.uk/downloads/theme_labour/
UKallinemploybySOCApr-Jun2009.xls
6 http://www.stats.berr.gov.uk/ed/sme/
smestats2008.xls
7 The entrepreneurship literature finds evidence
that job flexibility (in the guise of desire
for independence / being your own boss) is a
significant, if not necessarily the main driver
of people choosing to become self-employed
(Blanchflower and Oswald 1998, Burke et al
2000, and Hamilton, 2000).
8 These authors describe contingent/freelance
worker contracts using the phrase ‘nonstandard
employment arrangements’.
9 The empirical side of this literature which
estimates self-employment income as profits
stems from the seminal paper by Evans and
Jovanovic (1989).
END NOTES
51
END NOTES
10 The freelancer may be able to eliminate some of
this risk through the use of portfolio working.
11 Storey et al (2005, p.1048).
12 Smith (1776, Book I, Chapter 1, p7).
13 A Senior Commercial Manager, a Commercial
Manager and a Site Manager.
14 www.taylorwimpeyplc.com and
www.taylorwimpey.co.uk
15 Source: Taylor Wimpey Annual Report and
Accounts 2007 and 2009.
16 The non uniform nature of the timing and scale
of downtime across specialised inputs implies
that it would not be possible to completely avoid
downtime by scaling up the number of
construction projects.
17 The same approach is used when problems
emerge on building sites cause disruption of
the planning process and often require the
entire work schedule to be shifted forward.
18 www.sdpplastering.co.uk
19 www.mvkelly.co.uk
20 http://goldhillcontractingltd.web.officelive.com/
default.aspx
21 www.brianfell.co.uk
22 www.torclad.com
23 Burke (2012, p 15)
52
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